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For Egypt, A Fresh Start, With Cities

Originally published in The New York Times

February 15, 2011

David Leonhardt (Columnist, The New York Times)

It would be easy to look at the images coming out of Cairo over the last few weeks and think of Egypt as a highly urbanized society. It would also be wrong.
When Hosni Mubarak took power in 1981, Egypt was indeed more urban than the rest of the world. About 44 percent of its population lived in cities. In East Asia, by comparison, only 26 percent of people lived in cities.
Since then, the cities of Asia have expanded rapidly, drawing in millions of peasant farmers looking for a better life — and, more often than not, finding it. Almost 50 percent of East Asians now live in cities. And Egypt? It is the only large country to have become less urban in the last 30 years, according to the World Bank. About 43 percent of Egyptians are city dwellers today.
This urban stagnation helps explain Egypt’s broader stagnation. As tough as city life in poor countries can be, it’s also fertile ground for economic growth. Nearly everything can be done more efficiently in a well-run city, be it plumbing, transportation or the generation of new ideas and businesses. "Being around other people," says Paul Romer, the economist and growth expert, "helps make us smarter."Edward Glaeser, a Harvard economist (and weekly contributor to the Times’s Economix blog), has just published a book, The Triumph of the City, making the case that cities are humanity’s greatest invention. Countries that become more urban tend to become far more productive, Mr. Glaeser writes. The effect is even bigger for poor countries than rich ones.
Egypt, however, has been saddled with an almost ancient geographic structure. Like many dictatorships, it is dominated by a huge capital city, where people and businesses come to live off the government. Egypt has nothing like China’s Shenzhen, India’s Bangalore, South Korea’s Busan or, to go back further in time, our own Chicago — striving cities that have spawned thousands of new companies.
Those cities become giant incubators for economic growth. They are the places where people learn to collaborate and to compete, where they can take advantage of the skills they already have and learn new ones, too.
There is no magic formula for economic growth, unfortunately. Strategies that have worked in one place sometimes fail in another. But if the last few decades offer any economic lesson to Egypt’s next government, it’s that countries maximize their chances of success by giving their workers skills and forcing them to compete.
Egypt, along with much of the Arab world, has not done enough of either.
The lack of skill development is obvious. Among the 48 countries that participated in a recent standardized math test for eighth graders, Qatar finished dead last. The bottom dozen also included, in ascending order, Saudi Arabia, Kuwait, Palestine, Oman, Algeria, Egypt and Syria. (The United States placed ninth.)
The top five were all from Asia, led by Taiwan, South Korea and Singapore. Not coincidentally, those countries have grown much faster than Egypt and the rest of the Arab world since the 1980s.
Just as important as the skills deficit, however, is the trouble that many Egyptians have using their skills in the country’s sclerotic economy. Three researchers — Michael Clemens, Lant Pritchett and Claudio Montenegro — recently found a novel way to measure how well various countries use the workers they have. The three compared the wages of immigrants to the United States with the wages of similar workers from the same country who remained home.
A 35-year-old urban Egyptian man with a high school education who moves to the United States can expect an incredible eightfold increase in living standards, the researchers found. Immigrants from only two countries, Yemen and Nigeria, receive a larger boost. In effect, these are the countries with the biggest gap between what their workers can produce in a different environment and what they are actually producing at home.
No wonder 19 percent of Egyptians told Gallup (well before the protests) that they would move to another country if they could. Mr. Clemens says that for every green card the United States awarded in a recent immigration lottery, 146 Egyptians had applied.
So one of the tasks facing Mr. Mubarak’s successors will be creating places within Egypt where Egyptians want to move, much as Indian workers have flowed into Bangalore and Brazilian workers have flowed into Rio.
These will be the places where Egyptian companies become less reliant on the state and more exposed to global competition. They will be places where research and development, which is scant in Egypt today, take off. They will be places where ingenuity — the same kind of ingenuity that just toppled a dictator — creates jobs.
The first candidate, given all of its advantages, is clearly Cairo. Even under the Mubarak government, Cairo’s economy slowly became more market-based. And capital cities often beget small start-up clusters, like Zhongguancun, Beijing’s technology district.
But Cairo is also the city most dominated by the Egyptian army, which, if anything, has more power than it did three weeks ago. The army, as The San Francisco Chronicle notes, “owns companies that sell everything from fire extinguishers and medical equipment to laptops, televisions, sewing machines, refrigerators, pots and pans, butane gas bottles, bottled water and olive oil.” The army is probably not eager to give up its economic advantages.
A different kind of Egypt — one that may serve as a model for the Arab world — will need its own version of Bangalore or Shenzhen. This city can sprout from almost nothing, as Shenzhen did. Or it can have a history as rich as Alexandria, which just happens to be Egypt’s second-largest city. Whatever the details, you can be sure that a more prosperous Egypt will be a more urban one.
This article has been revised to reflect the following correction:
Correction: February 16, 2011An earlier version of this article misspelled the name of a Chinese city. It is spelled Shenzhen, not Shenzen.